> For the complete documentation index, see [llms.txt](https://cvnnt.gitbook.io/documentation/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://cvnnt.gitbook.io/documentation/introduction/why-use-covenant/self-custody-btc-yield.md).

# Self-custody BTC Yield

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Note: This chapter is currently under development.
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Covenant system has the unique combination of features:

* Onchain statefulness - the system tracks each operation transparently on-chain on each step;
* Algorithmic rules - deterministic predictable code that is on-chain-visible upfront and can not be changed mid-process
* Programmable logic - all the system is transparent, smart contract-based, without middleman.

This combo lets users:

* Deposit BTC securely
* Earn fair yield in real BTC
* Early exit withdrawal anytime - programmable, deterministically fast, no middleman, no gatekeepers.

### On-chain BTC yield programmability and statefulness instead of operators

No custodians, no decision-making committees. No redemption queues. No discretionary "yes/no". No off-chain trusted parts. And the very same BTC asset deposited returns along with additional real BTC reward.

### Covenant real BTC Yield general flow

<figure><img src="https://content.gitbook.com/content/IrCs7se0X60UkwSdNUVw/blobs/QedmJTqugEwKdDhzdDtD/image.png" alt="" width="563"><figcaption><p><em>Covenant system Real BTC Yield general flow.</em></p></figcaption></figure>

Note: Fees and commissions are excluded from the scheme for simplicity.

Alice starts with 1 BTC in her full self-custody (she holds the private keys herself).&#x20;

1. Alice makes a special deposit transaction on Bitcoin, locking her 1 BTC into a UTXO (an unspent output of BTC) that Covenant system is aware of. This keeps her in self-custody - no one else controls her keys.
2. Covenant sees the Bitcoin deposit on-chain. It creates channeled BTC -a 1:1 matched channeled asset on the Covenant system. This channeled BTC is tied directly to her original BTC UTXO with clear on-chain proof of her ownership both over BTC deposit and her channeled BTC asset.
3. Now Alice controls:
   * Her real BTC locked safely on Bitcoin (via UTXO).
   * Channeled BTC on Covenant (in her wallet / UTXO). She holds the keys for both.
4. Alice puts her channeled BTC into Covenant's Yield program (like a DeFi staking or yield farm). She adds her Bitcoin address where she wants to receive her extra BTC profit. The channeled BTC gets locked in a smart contract for the yield period.
5. During the yield time, the Covenant system earns real BTC organically, taking part of fees for on-Covenant operations. When the yield is ready (maturity):
   * Covenant sends the real BTC profit directly to Alice's chosen Bitcoin address (new BTC (UTXO)).
   * Covenant unlocks and returns the channeled BTC to her wallet.
6. Alice can now use the channeled BTC for other DeFi activities on Covenant system (like trading, lending, or moving to another network while keep channels active).
7. If Alice wants to withdraw her original 1 BTC back on Bitcoin:

* She calls the unchanneling smart contract on Covenant system.
* It automatically triggers a deterministic release transaction processing on Bitcoin.
* The exact same 1 BTC via the same UTXO goes back to her Bitcoin address.
* This happens programmable, fast - under 1 minute from Covenant system to Bitcoin - all on-chain, transparent, no middleman.

Optional: Deterministic early exit - programmable BTC withdraw anytime before yield maturity.&#x20;

Alice can use an "early exit" function to withdraw her BTC any time she desires as fast, easy, programmable as the usual withdraw. Early exit penalty on yield rewards is applied algorithmically only in accordance with the Alice's transparent smart contract-based yield terms that can't be changed mid-term.

#### Main things to keep in mind:

* Alice keeps full self-custody the whole time (she holds all keys).
* Her BTC is safely locked in her self-custody deposit.
* Everything is deterministic, automatic and on-chain verifiable.
* She earns real BTC yield (not fake tokens) from clear deterministic activity (Covenant system), with no central authority involved.